AUDUSD Elliott Wave: Bounce Into 0.705 Is Not a Reversal

A bounce is not a reversal. Knowing the difference is the whole game.

AUDUSD on the 4-hour chart is bearish, and the internal structure is nearly finished carving out its first leg down. Wave 1 completed at the lows. Wave 2 corrected up to 0.7200. Since then, price has been dropping in a clean 5-wave impulse, and that impulse is close to done.

What does the AUDUSD wave count show right now?

Zoom into the H4 chart and you can see waves (1) through (5) of wave (i) clearly labeled. Wave (3) extended lower, wave (4) corrected back up in a small triangle-like structure, and wave (5) pushed to a marginal new low near 0.70042. That completes the five-wave decline that makes up wave (i) of the larger bearish move.

This is the kind of structure that gets mistaken for "the bottom" by traders who only look at price, not wave count. It isn't. It's the end of the first impulse leg down, which means a correction is next, not a reversal of the whole trend.

Why is the next bounce a trap for buyers?

Once wave (i) finishes, wave (ii) takes over. Wave (ii) is a corrective bounce, and the expected target zone sits between the 0.5 and 0.618 Fibonacci retracements of the wave (i) decline, specifically 0.70388 to 0.70505.

Here's what happens next in almost every case like this. Price rallies into that zone. It looks strong. Traders who missed the initial short entry see the bounce and think the low is in. They buy. Then wave (iii) arrives and takes the market sharply lower again, straight through their stops.

This is exactly how amateur accounts get damaged on AUDUSD setups like this one. They confuse a Fibonacci retracement bounce with a change in trend. The trend never changed. Only the correction phase started.

Where does this bearish AUDUSD count get invalidated?

Invalidation is 0.70883. A close above that level cancels the bearish structure completely, because it would mean price has retraced beyond what a normal wave (ii) correction should allow.

As long as AUDUSD stays below 0.70883, the read stays the same: every bounce into the 0.70388 to 0.70505 zone is part of the correction, not the start of a new uptrend. The larger wave (iii) decline is still expected to follow once wave (ii) completes.

What should traders watch for next?

The next move to track is how price behaves once it enters the 0.5 to 0.618 retracement zone. A sharp rejection there, followed by renewed downside momentum, would confirm wave (ii) is complete and wave (iii) is underway.

The trend on AUDUSD is down. The correction just gives a better vantage point to see it play out. We wait for the bounce to show itself before reading what comes after.